A select few health insurance companies control a large portion of the individual and employer markets in each state, a new report from the Government Accountability Office finds. But it's unclear how Obamacare will affect those figures, as more insurers rush to give people more health plan options.
The GAO analyzed health insurer data from 2010 through 2013 to give a sense of how concentrated insurance markets are and how that competition affects consumers and employers. The report released Monday (PDF), the first required under the Patient Protection and Affordable Care Act, showed that the three largest insurers in 37 states controlled at least 80% of total enrollment in the individual, small-group and large-group segments.
However, the ACA's health exchanges did not begin operations until 2014, meaning the GAO's report is a snapshot of health insurer competition just before the reform law fully took off. Consequently, many experts said the report highlighted some already familiar observations.
“Insurance markets have long been highly concentrated,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation. “That was true before the Affordable Care Act, and it will likely be true after as well.”
When factoring in large carriers such as UnitedHealth Group, Aetna and Blue Cross and Blue Shield, “you've got already a pretty big chunk of the market” in many states, said Richard Hirth, a health policy and management professor at the University of Michigan's School of Public Health. For example, health insurer competition has been notoriously scant in Alabama. The GAO report said Blue Cross and Blue Shield of Alabama controlled 90% of the individual market in 2013. The insurer had an even bigger hold on the small-group (97%) and large-group (92%) segments. Employers with fewer than 50 employees are generally included in the small-group market, while bigger companies occupy the large-group market.
In other small and rural states like Mississippi, Montana, South Dakota, Vermont and Wyoming, where fewer insurers operate, bona fide oligopolies existed in 2013—with the top three insurers controlling 100% of a given market.
Competition was most prevalent in the individual markets. An average of 24 insurers offered a plan in that segment, compared with only 12 and 11 insurers in the small-group and large-group segments, respectively. However, there were some notable outliers. In Wisconsin's large group, the three largest insurers controlled only 39% of covered lives. Dean Health Plan, part of SSM Health Care, had the largest share with only 15%.
But consolidation also increased rapidly in the individual market. In 2010, 30 states had three insurers with at least 80% of enrolled lives in the individual sector. That number rose to 38 states by 2013.
Hospitals and doctors have sparred with insurance companies over issues of concentrated markets. Providers argue insurer consolidation has allowed them to raise prices and dictate which providers are essential. Payers have said the opposite—their consolidation trends pale in comparison to the rise in hospital and doctor group mergers. Many health economists have backed up insurers' claims, saying in some instances provider mergers do lead to increased prices for consumers.
However, the Affordable Care Act has instituted several provisions to prevent payers from capitalizing on any lack of competition, Levitt said. The medical-loss ratio, for instance, requires health insurers to spend at least 80% to 85% of premium dollars on medical claims. Any dollar above that amount not spent on medical care goes back to consumers in the form of rebates.
The GAO will issue the health insurance competition reports to Congress every two years. Policy experts such as Jon Gabel, a senior fellow at independent research organization NORC at the University of Chicago, believe the next report in 2016 will be more influential because it will give a clearer picture of how insurers initially competed in the ACA exchanges—and whether it led to less market concentration.
“There certainly has been considerable new entry into the individual and small-group market,” Gabel said.
Indeed, early reporting shows that many insurers—like UnitedHealth and new not-for-profit co-op insurers—are going after new exchange members by pricing their health plans well below their competitors. The Commonwealth Fund also said in a blog post Monday that competition appears to be especially high among health insurers in state-run marketplaces.
“There are some signs that new entrants are putting competitive pressure on existing insurers in the ACA's marketplaces and grabbing market share,” Levitt said. “That could scramble the playing field over the next couple of years.”
Follow Bob Herman on Twitter: @MHbherman